30 June 2017
Update
| Sector:
Oil & Gas
ONGC
Buy
BSE SENSEX
30,858
S&P CNX
9,504
CMP: INR158
TP: INR195 (+24%)
Lowering crude oil price estimates
Stock price correction provides an opportunity to buy
Crude oil prices decline despite production cut extension
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
ONGC IN
12,833
212 / 141
-9/-33/-5
2,335.7
34.4
1453
31.9
Financials Snapshot (INR b)
Y/E Mar
FY17 FY18E
1421
1561
Sales
471
606
EBITDA
211
230
NP
16.4
17.9
EPS (Rs)
20.8
8.9
EPS Gr. (%)
172
179
BV/Sh. (Rs)
10.4
10.2
RoE (%)
8.5
8.9
RoCE (%)
9.6
8.8
P/E (x)
0.9
0.9
P/BV (x)
EV/EBITDA (x)
4.8
3.8
Div. Yield (%)
3.8
6.3
FY19E
1771
703
259
20.1
12.6
186
11.1
9.5
7.8
0.8
3.3
7.1
On 25 May 2017, OPEC and non-OPEC countries agreed to extend oil
production cut until March 2018 in a bid to boost oil prices.
Despite this, oil prices have declined due to rising production from Nigeria and
Libya – the two OPEC members exempt from the cut.
In May 2017, oil production in Libya increased by more than 240kbpd to
780kbpd and in Nigeria by 140kbpd to 1.52mbpd.
The increased shale drilling and the revival in oil production from
Libya/Nigeria are expected to lead to higher-than-expected slowdown in
inventory draws in 2017. It presents a risk of inventory normalization not
being achieved by the time the OPEC cut ends in March next year.
We expect crude oil prices to hover near USD50/bbl until there is evidence of
a decline in the US rig count, an increase in inventory draws or additional
OPEC production cut. Thus, we reduce our crude oil price estimates to
USD50/55/bbl for FY18/19 v/s USD55/60/bbl earlier.
Management’s conscious efforts on cost efficiencies through lower workover
and water injection have resulted in opex coming down from USD7.4/boe in
FY16 to USD6.3/boe in FY17. We expect this cost efficiency to sustain.
ONGC is expected to witness gas production growth of 10-15% annually for
the next five years, led by the Daman, C26, S1, Vashishta and Bassein fields.
Also, oil production is expected to increase from the nominated fields like
WO16, Vasai East and Ratna & R-series.
We do not expect any subsidy burden to be levied on ONGC as long as oil
prices are below USD65/bbl. However, realization may be capped if oil prices
move above that level.
Crude oil prices have declined sharply due to short-term imbalance in the
global oil market. We expect crude oil prices to increase as the market
rebalances, and note that ONGC is a direct play on crude oil price.
With OPEC and non-OPEC agreeing to extend oil production cut until March
2018, we expect stability in crude oil prices and also in the company’s
realizations. For FY18/19, we model Brent of USD50/55/bbl and expect EPS of
INR17.9/20.1.
ONGC’s stock price has declined ~11% in June, led by a fall in crude price and
INR appreciation. This correction is an opportunity to buy, in our view.
We value the stock at INR195 using SOTP valuation. The stock trading at 7.8x
FY19E EPS of INR20.1 and at EV of 3.3x FY19E EBITDA. Maintain
Buy.
ONGC is well placed
Shareholding pattern (%)
As On
Mar-17 Dec-16 Mar-16
Promoter
68.1
68.9
68.9
DII
12.0
11.7
11.9
FII
6.3
5.8
5.6
Others
13.7
13.6
13.6
Note: FII Includes depository receipts
Stock Performance (1-year)
ONGC
Sensex - Rebased
210
190
170
150
130
Stock price correction provides an opportunity to buy
Swarnendu Bhushan
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale
(Abhinil.Dahiwale@MotilalOswal.com); +91 22 6129 1566
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

ONGC
Crude oil price to hover around USD50/bbl
Exhibit 1: Crude oil production from OPEC was flat YoY (up MoM) at 32.1mbpd in May 2017
Crude Oil Production, OPEC Total (mbpd)
7%
33.3
6%
3%
3%
2%
32.6
2%
32.7
2%
32.9
32.6
2%
32.6
3%
2%
0%
32.0
32.2
32.2
4%
YoY (%)
33.1
4%
32.2
32.1
31.6
-1%
31.7
0%
-1%
32.0
0%
32.3
31.9
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
Source: EIA, MOSL
Exhibit 2: Libyan oil production increased by more than 240kbpd to 780kbpd in May v/s 540kbpd in April 2017
Crude Oil Production, Libya (mbpd)
YoY (%)
169%
0.4
0%
0.4
0%
0.3
-33%
0.3
-35%
0.3
-33%
0.3
-20%
0.3
-23%
0.3
-31%
0.3
-18%
31%
0.6
53%
68%
84%
92%
84%
64%
0.8
0.5
0.6
0.6
0.7
0.7
0.6
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
Source: EIA, MOSL
Exhibit 3: Nigerian oil production increased by more than 140kbpd to 1.52mbpd in May 2017
Crude Oil Production, Nigeria (mbpd)
2%
-1%
-9%
-10%
-24%
-12%
-25%
-18%
-31%
-28%
-18%
-19%
-18%
-12%
YoY (%)
16%
-22%
-24%
1.8
1.8
1.6
1.6
1.3
1.4
1.4
1.2
1.3
1.5
1.5
1.4
1.4
1.5
1.3
1.4
1.5
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
Source: EIA, MOSL
30 June 2017
2

ONGC
Exhibit 4: US crude oil production increased consecutively in April and May 2017 after declining in previous months
9.2
9.2
9.2
9.0
-2%
-4%
-4%
-7%
-6%
8.9
8.7
-7%
8.7
-8%
8.8
-7%
8.6
-9%
U.S. Crude Oil Production (mbpd)
YoY (%)
2%
8.8
-6%
-5%
8.9
-5%
8.8
-1%
-4%
9.1
9.1
9.2
-1%
4%
8.9
9.0
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
Source: EIA, MOSL
Exhibit 5: US shale basin rig count has been increasing; rig count increased by ~200 in 2017 YTD v/s 35 in 2016
US Shale - Rig count
YoY (%)
454
498
541
54%
-4%
19%
87%
574
619
653
149%
120%
419
352
307
281
-58%
262
-57%
274
-53%
300
-48%
333
-43%
352
367
-29%
401
-63%
-62%
-60%
-38%
-20%
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17
Source: EIA, MOSL
Valuation and view
Reducing our crude oil estimates for FY18/19
ONGC is set to increase its gas production by 10-15% annually for the next five
years, according to management.
Continued improved oil recovery (IOR) and contribution of new projects to
production would also help reverse the decadal trend of negative-to-flat growth.
We expect oil prices to remain in the USD50-55/bbl range, which should provide
stability to its earnings. For FY18/19, we model Brent of USD50/55/bbl and
expect EPS of INR17.9/20.1.
ONGC’s stock price has declined by ~11% in June, led by a fall in crude price and
INR appreciation. This correction is an opportunity to buy, in our view.
We value the stock at INR195 using SOTP valuation. The stock trading at 7.8x
FY19E EPS of INR20.1 and at EV of 3.3x FY19E EBITDA. Maintain
Buy.
30 June 2017
3

ONGC
Exhibit 6: SOTP for ONGC
Valuation of ONGC
Consol. FY19 EPS
FY19 Other income (INR b)
Other income (INR/share)
FY19 EPS excluding other income (INR)
PE (x)
Valuation of ONGC consol. (INR/share)
Listed investments
Indian Oil Corporation
Petronet LNG
GAIL
MRPL
Total valuation
Valuation of Mozambique
Recoverable reserves (tcf)
Valuation of block (USD b)
ONGC's stake (%)
Discount rate (%)
Valuation for ONGC (USD b)
Value paid (USD b)
Valuation for ONGC (INR/share)
Valuation of ONGC (INR/share)
20.1
57.4
2.9
17.3
10.0
173
12
3
1
11
200
75
31
16
50
3
3
(4)
195
Source: MOSL, Company
Exhibit 7: ONGC: Key assumptions
Year End: March 31 (INRm)
Exchange Rate (INR/USD)
APM Gas Price (USD/mmbtu)
Brent crude price (USD/bbl)
Production Details (mmtoe)
Domestic Oil Prodn (mmt)
Domestic Gas Prodn (bcm)
Domestic Prodn (mmtoe)
OVL Production (mmtoe)
Group Production (mmtoe)
Subsidy Sharing (INRb)
ONGC Subsidy
Oil Price Realization (USD/bbl)
Gross
Upstream Discount
Net
FY12
47.8
4.2
114.5
26.9
25.7
52.6
8.8
61.4
445
117.4
62.4
55.0
FY13
54.4
4.2
110.6
26.1
25.3
51.5
7.3
58.7
494
110.5
62.9
47.6
FY14
60.6
4.2
107.8
26.0
24.9
50.9
8.4
59.3
564
106.7
65.8
40.9
FY15
61.4
4.9
86.0
25.9
23.5
49.5
8.9
58.3
363
86.0
40.9
45.1
FY16
65.5
4.7
47.6
25.9
22.5
48.5
8.9
57.4
17
48.6
1.8
46.8
FY17
67.1
3.1
49.0
26.4
23.5
50.0
12.8
62.8
0
50.2
0.0
50.2
FY18E
65.6
2.9
50.0
26.2
25.6
51.8
15.0
66.8
0
51.0
0.0
51.0
FY19E
67.0
3.2
55.0
26.2
29.5
55.7
15.0
70.7
0
56.1
0.0
56.1
Source: Company, MOSL
30 June 2017
4

ONGC
ONGC: Story in charts
Exhibit 8: Expect domestic production uptick in
coming years (mmt)
Domestic Oil Prodn (mmt)
52.6
51.5
25.3
50.9
24.9
49.5
23.5
Domestic Gas Prodn (bcm)
55.7
51.8
50.0
48.5
22.5
23.5
25.6
29.5
5.1
4.3
5.4
5.4
Exhibit 9: JV production to decline
JVs (mmtoe)
5.3
25.7
5.2
4.9
4.9
4.4
3.8
26.9
FY12
26.1
FY13
26.0
FY14
25.9
FY15
25.9
FY16
26.4
FY17
26.2
26.2
FY18E FY19E
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: OVL production to increase in FY18/19…
Domestic Prodn (mmtoe)
61.4
8.8
58.7
7.3
59.3
8.4
58.3
8.9
OVL Production (mmtoe)
70.7
66.8
62.8
57.4
15.0
15.0
12.8
8.9
Exhibit 11: …leading to increase in net realization (USD/bbl)
Net
117
111
107
86
62
63
66
41
45
FY15
49
2
55
48
FY13
41
FY14
47
FY16
50
FY17
50
0
51
51
0
56
56
0
Upstream Discount
Gross
52.6
51.5
50.9
49.5
48.5
50.0
51.8
55.7
FY12
FY13
FY14
FY15
FY16
FY17
FY18E FY19E
FY12
FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: ONGC: 1-year forward P/E (x)
24
18
12
6
11.1
7.2
8.0
PE (x)
Peak(x)
Avg(x)
20.7
Min(x)
Source: Company, MOSL
30 June 2017
5

ONGC
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Government Levies
Other Operating Costs
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
1,624,032
11.0
256,886
818,387
1,075,274
66.2
548,758
33.8
231,399
317,359
4,838
54,900
367,422
0
367,422
127,519
34.7
-2,294
242,196
242,234
-6.9
14.9
FY14
1,744,771
7.4
261,893
892,607
1,154,500
66.2
590,270
33.8
250,690
339,580
6,243
68,937
402,274
2,423
404,697
127,604
31.5
1,465
275,628
262,235
8.3
15.0
FY15
1,608,897
-7.8
255,065
807,294
1,062,360
66.0
546,538
34.0
289,844
256,694
28,624
59,644
287,715
-14,011
273,704
96,974
35.4
-6,606
183,335
183,638
-30.0
11.4
FY16
1,356,642
-15.7
0
904,510
904,510
66.7
452,132
33.3
224,626
227,506
37,656
81,448
271,298
-79,433
191,865
69,507
36.2
-8,657
131,016
174,478
-5.0
12.9
FY17
1,421,490
4.8
0
950,925
950,925
66.9
470,565
33.1
226,394
244,171
29,534
79,153
293,789
5,910
299,699
95,617
31.9
-10,702
214,783
210,759
20.8
14.8
(INR Million)
FY18E
1,560,537
9.8
0
954,176
954,176
61.1
606,362
38.9
261,372
344,989
38,905
56,130
362,215
0
362,215
128,117
35.4
4,555
229,543
229,543
8.9
14.7
FY19E
1,770,575
13.5
0
1,067,792
1,067,792
60.3
702,783
39.7
303,613
399,169
46,200
57,369
410,339
0
410,339
145,139
35.4
6,675
258,525
258,525
12.6
14.6
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Pre & Producing Properties
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY13
42,778
1,482,502
1,525,280
19,466
204,508
142,251
1,891,506
1,234,978
827,192
407,786
83,255
397,397
841,867
21,282
776,748
127,804
153,956
302,540
192,449
636,828
373,384
263,445
139,920
1,891,506
FY14
42,778
1,678,732
1,721,510
29,125
455,881
178,635
2,385,152
1,408,679
945,671
463,008
183,545
538,270
1,094,748
47,459
915,192
148,015
160,284
365,631
241,263
857,070
543,502
313,568
58,122
2,385,152
FY15
42,778
1,761,766
1,804,544
24,731
518,713
181,759
2,529,748
1,712,933
1,025,052
687,881
201,399
422,115
1,122,017
47,491
890,070
106,062
187,970
297,393
298,644
841,225
490,837
350,388
48,845
2,529,748
FY16
42,778
1,804,666
1,847,443
25,067
535,926
203,553
2,611,989
1,701,114
1,205,496
495,619
176,432
685,950
1,183,722
87,822
920,649
100,897
96,865
405,588
317,299
938,206
528,837
409,369
-17,557
2,611,989
FY17
64,166
2,147,729
2,211,895
41,243
556,819
290,991
3,100,948
2,881,281
1,281,423
1,599,858
141,737
195,730
375,963
697,096
671,644
113,641
116,926
312,422
128,654
581,079
555,163
25,916
90,564
3,100,948
(INR Million)
FY18E
64,166
2,228,211
2,292,377
45,798
740,000
290,991
3,369,166
2,174,615
1,421,569
753,046
141,737
240,711
1,346,421
697,096
847,702
121,857
110,105
475,492
140,249
657,548
574,043
83,505
190,155
3,369,166
FY19E
64,166
2,318,855
2,383,021
52,472
800,000
290,991
3,526,485
2,303,302
1,570,833
732,470
141,737
283,499
1,450,597
697,096
921,786
133,035
124,924
510,888
152,939
700,699
610,494
90,206
221,087
3,526,485
30 June 2017
6

ONGC
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY13
18.9
36.9
118.9
6.3
38.9
FY14
20.4
40.0
134.1
6.3
34.5
FY15
14.3
36.9
140.6
6.3
53.2
11.0
4.3
1.1
1.4
4.1
4.0
-0.8
10.4
9.1
10.4
0.9
0.6
24
43
111
1.1
9.0
0.1
FY16
13.6
31.1
144.0
5.7
66.8
11.6
5.1
1.1
1.6
4.8
3.6
21.2
9.6
8.4
9.1
0.8
0.5
27
26
142
1.0
6.0
0.0
FY17
16.4
34.1
172.4
6.0
43.5
9.6
4.6
0.9
1.6
4.8
3.8
3.2
10.4
8.5
10.0
0.5
0.5
29
30
143
1.2
8.3
-0.2
FY18E
17.9
38.3
178.6
9.9
64.9
8.8
4.1
0.9
1.5
3.8
6.3
9.3
10.2
8.9
11.6
0.7
0.5
29
26
134
1.3
8.9
-0.2
FY19E
20.1
43.8
185.7
11.2
64.9
7.8
3.6
0.8
1.3
3.3
7.1
10.4
11.1
9.5
12.9
0.8
0.5
27
26
126
1.3
8.6
-0.2
4.0
1.9
16.8
15.0
20.2
1.3
0.9
29
35
84
1.2
65.6
-0.1
4.0
-6.5
16.2
14.3
17.9
1.2
0.7
31
34
114
1.1
54.4
0.0
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY13
367,422
120,942
-124,257
-11,710
352,397
94,606
447,003
-422,802
24,201
10,698
11,524
-400,580
2,038
-2,678
-110,021
-117,532
-71,109
373,649
302,539
FY14
394,134
233,219
-105,667
42,031
563,718
-31,014
532,704
-615,655
-82,951
-20,671
14,467
-621,859
1,782
247,223
-97,624
152,246
63,091
302,539
365,631
FY15
273,704
269,009
-90,292
-115,768
336,653
3,433
340,086
-350,957
-10,871
0
47,997
-302,960
-23
1,603
-94,953
-105,364
-68,238
365,631
297,393
FY16
273,897
307,994
-68,207
174,596
688,280
0
688,280
-416,305
271,975
-40,331
-13,220
-469,856
0
17,213
-127,442
-110,229
108,195
297,393
405,587
FY17
299,699
174,355
-95,617
-148,900
229,536
71,778
301,314
-259,754
41,560
-290,427
8,106
-542,074
0
111,342
-93,450
147,595
-93,165
405,587
312,423
(INR Million)
FY18E
362,215
261,372
-128,117
53,521
548,991
0
548,991
-430,000
118,991
0
0
-430,000
0
183,181
-149,060
44,078
163,069
312,423
475,492
FY19E
410,339
303,613
-145,139
-5,493
563,320
0
563,320
-430,000
133,320
0
0
-430,000
0
60,000
-167,881
-97,924
35,396
475,492
510,888
30 June 2017
7

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30 June 2017
8